Barely two days in office as the new helmsman of the Central Bank of Nigeria (CBN), Dr Olayemi Cardoso charged the leadership team of the apex bank with the responsibility of reviewing key policies of the bank, especially those that have to do with foreign exchange management, in order to draw up action plans to stabilise the market, The Guardian has been informed.
The governor was said to have started working with a workgroup, comprising both CBN officials and external experts, on the most appropriate strategies to deal with the FX crisis and rein in inflation even ahead of his resumption.
A source familiar with the engagements of the CBN designate so far, told The Guardian that the governor has told the management in clear terms that he would place priority policies and decisions that would restore market confidence as he set to lead “a transparent CBN”.
The source said Cardoso has demonstrated an immense understanding of the mood of the market and the urgency his job demands. If there is any iota of doubt about the urgency Cardoso’s job demands, his resumption at the CBN ahead of the Senate confirmation puts pay to it. He resumed last Friday amid reports of the resignation of the investigated former deputy governors. The Guardian had reported earlier that the apex bank faced a leadership vacuum, forcing it to postpone the September Monetary Policy Committee (MPC) meeting scheduled for yesterday and today.
As Cardoso assumed the oath of office on Friday noon, the naira fell with offers touching N1000/$ at the Lagos and Abuja black market. Market analysts stated that the naira weakening, with market arbitrage surging to 50 per cent, is a telling reflection of the enormous challenge before the new CBN boss.
The market seems to have switched to sideways movement, perhaps attempting to guess the policy direction of the new chief regulator, who may not make any official pronouncement until he passes the Senate hurdle, scheduled for today.
The governor-designate and four deputies – Emem Usoro, Muhammad Dattijo, Philip Ikeazor and Dr Bala Bello – were nominated and took oath of office while the Senate was in annual recess.
The nominees who have since on Friday settled down for the tough jobs of salvaging the financial system President Bola Tinubu described as “rotten” under the former supervision, Godwin Emefiele, are likely to be confirmed today.
In a statement by the Media Office of the Senate Leader, Michael Opeyemi Bamidele, said yesterday that the upper legislative chamber would screen all the nominees following its resumption from its annual recess today.
“The Senate of the Federal Republic of Nigeria will resume plenary on Tuesday, September 26. We will consider the screening of Dr. Cardoso at the Committee of the whole. Cardoso will be screened alongside four deputy governors namely Mrs. Emem Nnana Usoro, Mr. Muhammad Sani Abdullahi Dattijo, Mr. Philip Ikeazor, and Dr. Bala M. Bello,” the statement said.
The CBN nominees would certainly take salvos on their preparedness for the tough job and daunting challenges, ranging from runway inflation, volatile exchange rate, contentious ways and means (W&M) advances, ambiguous external reserves, falling bank adequacy ratio, unaffordable cost of borrowing, touchy development financing and sundry issues.
Cardoso may walk a tightrope of striking balance between growth, which is currently at a snail’s speed, and inflation, which is equally at its highest point in close to two decades.
His predecessor, Godwin Emefiele, in pursuit of growth, left inflation unattended to. Experts said his religious pursuit of development finance programmes was a major source of economic distortion and inflation.
Ironically, despite the huge credit expansion, which the International Monetary Fund (IMF) said was crowding out commercial funding, growth averaged 1.9 per cent during Emefiele’s two tenure in office.
The market is awaiting the Cardoso magic touch and how it would ease the pressure on the FX rate and close the market arbitrage, which is currently at about N250 per dollar or 30 per cent.
But a leading Nigerian economist and Chief Executive of Economic Associates, Dr Ayo Teriba, said there is neither an easy way out of the FX crisis nor is it entirely the job of the CBN to stabilise the market. A solution, he said, would only come when the entire country and the citizens decide to address the odds against a stable naira.
Likening economic policy management to medical treatment, Teriba said there are no quick fixes or low-hanging fruits in stabilising the market for the country to go the whole hog in correcting the flaws.
“Without a correct diagnosis of the problem, you cannot solve it. We are coming from an era when the regime we had in the Central Bank had not even published its financial statements for five years. Nobody knew what was going on with the CBN; there was no transparency or accountability.
“If a new team is taking over, I think their new task is to establish the state of things since nobody is sure what has happened. There is some clarity now that they have left,” Teriba.
Sanusi Lamido Sanusi assumed office after a consolidation exercise supervised by Charles Soludo, who is now the governor of Anambra State. The banks were so big and raised more money than they needed, and most of them were reckless. Sanusi would later unveil the biggest fraud in the country’s financial system history. Insider trading and poor risk management had pushed up non-performing loans (NPL) to as high as 37 per cent in 2009.
Whereas the CBN has been grappling with price instability, with both inflation and interest rates at multi-decade highs, the banks seem to have been in a stable condition. But Teriba said that it stops at hope until a proper check is conducted on them. He recalled that it took Sanusi’s probing eyes for Nigerians to realise that some of the leading banks were mere financial graveyards. But he admitted that the concern about bank stability appears to take a backseat while the most threatening issues have to do with inflation and exchange rate.
Some experts have suggested that the CBN could, in the coming months, review the capital adequacy level of the banks, considering the extent of deterioration of their assets by naira depreciation in the past few years.
In what he called 10 priority areas for the new CBN management, Director General of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, wrote: “The minimum capital requirements of the banking industry need to be reviewed in the light of the considerable loss of value amid depreciating domestic currency. During the banking consolidation exercise of 2004, the minimum capital requirements for banks were raised from N2 billion to N25 billion. The revised capital requirement was an equivalent of $187 million.
“Today the same N25 billion is an equivalent of just $32.5 million. This is a clear indication of the phenomenal erosion of the capital base of the banks. Recapitalisation of the banks has therefore become imperative. It is important to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system.”
Earlier, The Guardian reported that the banks could be forced to embark on capital adequacy assessment, which could lead to fresh capital raising or the regulator could come up with a reality check that could suggest additional capital sourcing as naira depreciation weakens the position of the banks.
The Basel arrangement, a global standard of minimal capital and other requirements for banking service, could force the hand of the banks or the Central Bank of Nigeria (CBN), Abiodun Karipe, an Investment research analyst at Afrinvest Group, said.
Capital adequacy is only one of the many financial system integrity tests the new management of the CBN will conduct. Cardoso is also being pressed to establish the true state and extent of default in the development financing regime of Emefiele and quickly take a decision on the fate of trillions of naira extended to different sectors of the economy much of which have not been repaid.
Writing off may not be an off-the-shelf decision as a large part of the money comes from the sterilized banks’ cash reserves. The current cash reserve ratio – a technical term for describing the percentage of bank deposits held by the regulator, is 32.5 per cent. Rather than keeping the funds dormant, the CBN is said to have used part of it to fund the interventions in the economy.
The extent of default of the loans is a matter of guess. For instance, the Anchor Borrower Programme (ABP), a flagship component of the scheme, gulped over N1 trillion, with the default rate ranging from 50 to 80 per cent depending on whose information one accesses. Part of trillions of frauds linked to Emefiele, as reported by The Guardian, is associated with the intervention programmes. While the Special Investigator set up to probe the bank, Jim Obazee, has been investigating the disbursement of the funds, the new CBN management is said to have also commenced a review of them from operationalisation perspective.
Teriba, yesterday, faulted the reported securitisation of the WMs estimated at N22.71 trillion last year before ex-President Muhammadu Buhari requested for additional N1 trillion to fund the 2022 supplementary budget. He said the amount could not have been restructured as claimed by the Debt Management Office (DMO).
“The DMO does not buy or sell bonds, it issues bonds to the market. Somebody has to buy it, and instructing the DMO to do it does not mean that it has been done. The capacity of the debt market in Nigeria is about N30 trillion whereas the federal and state government has borrowed over N26 trillion. Some of us have asked the government to stop issuing debt but equity on some of the assets of the government,” Teriba said.
In its second quarter debt update, the DMOs explained that the securitisation of the outstanding N22.7 trillion WM had pushed up the national public debt to N87.34 trillion as previously agreed.
The bond was to be issued to the CBN to take the debt off the balance sheet of the Bank but there is zero disclosure of how the bond issuance played out. Communication team members of the DMO said only the Director General, Patience Oniha, could attend to media inquiries on the issue. an email addressed to the DG had not responded to as of press time.
The international finance community, which had long kicked against the violation of the CBN Act’s provision on ways and means (W&Ms), is waiting to see how the new management resolves the contentious issue, which could be an acid test of Cardoso’s determination to assert his independence, even as the Tinubu administration could resort to the window to bridge the funding gap.
The WM financing of fiscal deficits for the Federal Government in recent years was driven primarily by the unholy alliance between the CBN and the Presidency. Recall that Emefiele had faulted IMF’s query, saying it would amount to irresponsibility on the part of the CBN to turn down a request for loans by the Federal Government.
As of last year, the CBN had granted about N22.7 trillion in advances to the FG, according to reports. The amount was about N22.5 trillion or more than the limit of N252.27 billion allowed by the CBN Act, which limits the funding to a maximum of five per cent of prior year’s revenues.
While N22.71 trillion CBN debt held by the Federal Government as of last year may have been moved from the apex bank’s balance sheet to the DMO for management or in the process, the authorities are quite about the amount reportedly loaned to the government towards last year and the end of last administration.
Buhari had written the lawmakers requesting approval of a request for an additional N1 trillion borrowing from the CBN to fund the 2022 supplementary budget while some reports claimed more additional loans were incurred this year leading to the inauguration of the Tinubu administration.
Cardoso would need to resolve to make known the status of budget support the CBN granted states a few years ago. During a confrontation between Emefiele and the Edo State Governor, Godwin Obaseki, the former revealed that the states had yet to pay back the debts.
“That loan remains unpaid till now and we are going to insist on the states paying back those monies going forward, since they are accusing us of giving them loans – effectively that is what they are saying,” the CBN governor said.
The CBN boss resumes at a time when the CBN faces what experts have described as a confidence deficit with the former governor and his deputies paying regular visits to the facilities of the Department of State Security (DSS) for interrogation by Obazee and his team.
Experts said decisive actions would be needed to restore confidence in the institution and the market. Those actions have begun in earnest. But Cardoso would also need tact and due diligence to avoid past mistakes, analysts have observed.
